When titles pass from one person to another usually the home warranty insurance would carry over with the property. However, when a developer becomes insolvent and the mortgagee takes possession of the land do the assurances in the Home Building Act 1989 (NSW) allow a successor in title to benefit from insurance policies apply to the mortgagee?

This exact question was answered in the recent case of Gardez Nominees Pty Ltd v NSW Self Insurance Corporation [2016] NSWSC 532 where a developer went insolvent leading to the financer becoming the possessor of the property. Subsequent to this the mortgagee sought to have the damage carried out by the builders rectified through insurance and the insurance company refused the claim.

The Court agreed with the insurance company concluding that under the Real Property Act a mortgage only gives rise to a security, not a transfer of title. Therefore, a mortgagee is not a successor in title and can only collect income that flows from the property. Also, the Court held that the financier as a mortgagee in possession could not become a non-contracting owner. For statutory warranties and home insurance to flow to a non-contracting party, it requires parties to be the non-contracting owners at the time the contract was formed.